Mozambican commercial bank liquidity and its determinants

Abstract

Despite the Central Bank of Mozambique's best efforts to assist commercial banks through a range of policies and regulations, the majority of these banks have been unable to satisfy their liquidity obligations on time, resulting in unacceptably large losses that have forced mergers or necessary resolutions. Thus, the purpose of this study was to determine the factors that affect Mozambican commercial banks' liquidity using bank-specific and macroeconomic data from 2013 to 2022. Data was analysed using unbalanced panel regression analysis (PRA). Specific bank data were gathered from a sample of eight commercial banks, which control 95 % of the market share in the banking system bank's annual report, which was accessible on their websites, while macroeconomic data were gathered from World Bank reports and Central Bank of Mozambique’s reports from 2013 to 2022 (10 years). Financial statements from the commercial banks were used for all statistical calculations for the years 2013 – 2022. The research findings show that bank liquidity was significantly and positively impacted by the GDP, inflation, loan interest rates, amount of non-performing loans, capital adequacy, and bank profitability. There was no statistically significant variation in bank size when it came to the decrease in liquidity. According to the report, Mozambican commercial banks should be more focused on deposit mobilization to preserve a healthy liquidity buffer and enhance liquidity performance. Therefore, by presenting results on the current liquidity position and the macroeconomic and bank-specific factors influencing the liquidity of commercial banks in Mozambique, this study hopes to add to the body of current literature. The research study suggests strengthening the fiscal and monetary policies to improve bank liquidity control and monitoring systems in compliance with Basel III regulations.